Equity Key vs. Reverse Mortgage
Many older homeowners are choosing to seek information on reverse mortgages because they want to supplement their retirement income with their home equity. Reverse mortgage programs can be advantageous because all loan payments are deferred as long as the property remains the borrower’s primary residence.
The recent attention surrounding these loans has caused some seniors to ask, “What else is out there?” In other words, is a reverse mortgage the only option elder homeowners have when wanting to access their home equity? The answer is no. This article investigates one of those options, which is called Equity Key, and contrasts this program with information on reverse mortgages.
Equity Key, or Equity Exchange Program, works very similar to a bank reverse mortgage because the program allows seniors aged 65 to 84 to access their home equity without incurring additional debt.
While considered an alternative to reverse equity mortgages, Equity Key differs in several ways.
Ownership
Equity Key ultimately seeks the market value of the home. Equity Key protects lender interests by having all participants sign a life insurance policy that names Equity Key as the beneficiary to their home. Whether your home appreciates or depreciates in value, Equity Key is entitled to the future value of the home.
Although a lien for the reverse mortgage loan debt is placed against the property, at the end of the loan term the mortgage is paid in full and the lender removes the lien from the property.
Primary Residence
Unlike a jumbo or HECM reverse mortgage, Equity Key does not require that the home in question be the owner’s primary residence. With Equity Key, homeowners do not have to be living in the home to access the equity. The property can be used as a secondary residence or even a vacation house.
Property Value
With Equity Key, homeowners can individually access 12 to 15 percent of their home’s current value in the form of a lump sum or an annual stipend in exchange for a percentage of their home value. The minimum value of the home in question must be $500,000; however, homeowners can combine two or more properties to reach the 500,000 minimum.
HECM and jumbo reverse mortgages, on the other hand, typically have no restrictions on home value.
Health
There are no health questionnaires to fill out when applying for a HECM, jumbo, or HUD reverse mortgage. Equity Key, on the other hand, requires that the participant(s) be in good health. Equity Key considers health because the lender will not receive its initial investment if the borrower dies before the lender can recoup the loan monies.
Individual Choice
Unlike a traditional reverse home mortgage, both homeowners are not required to participate in the Equity Key program. One homeowner receives 12 to 15% of the home’s value, and, if both qualified homeowners participate, they typically collect 20% to 30% of the property’s current value. Remember, Equity Key receives 100% of any future appreciation.
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